Effects Associates, Inc. v. Cohen

• Citation: 908 F.2d 555
• Decision Date: 20 July 1990
• Docket Number: No. 88-6455,88-6455
• Parties: 1990 Copr.L.Dec. P 26,605, 15 U.S.P.Q.2d 1559 EFFECTS ASSOCIATES, INC., Plaintiff-counter-defendant-Appellant, v. Larry COHEN; Larco Productions, Inc.; New World Entertainment, Defendants-counter-claimants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 555

908 F.2d 555

1990 Copr.L.Dec. P 26,605, 15 U.S.P.Q.2d 1559

EFFECTS ASSOCIATES, INC., Plaintiff-counter-defendant-Appellant, v. Larry COHEN; Larco Productions, Inc.; New World Entertainment, Defendants-counter-claimants-Appellees.

No. 88-6455.

United States Court of Appeals Ninth Circuit.

Argued and Submitted March 7, 1990.

Decided July 20, 1990.

John Blair Overton, Sausalito, Cal., for plaintiff-counter-defendant-appellant.

Vincent Cox, Leopold, Petrich & Smith, Los Angeles, Cal., for defendants-counter-claimants-appellees.

Appeal from the United States District Court for the Central District of California.

Before CANBY, KOZINSKI and LEAVY, Circuit Judges.

KOZINSKI, Circuit Judge:

What we have here is a failure to compensate. Larry Cohen, a low-budget horror movie mogul, paid less than the agreed price for special effects footage he had commissioned from Effects Associates. Cohen then used this footage without first obtaining a written license or assignment of the copyright; Effects sued for copyright infringement. We consider whether a transfer of copyright without a written agreement, an arrangement apparently not uncommon in the motion picture industry, conforms with the requirements of the Copyright Act.

Facts

This started out as a run-of-the-mill Hollywood squabble. Defendant Larry Cohen wrote, directed and executive produced "The Stuff," a horror movie with a dash of social satire: Earth is invaded by an alien life form that looks (and tastes) like frozen yogurt but, alas, has some unfortunate side effects--it's addictive and takes over the mind of anyone who eats it. Marketed by an unscrupulous entrepreneur, the Stuff becomes a big hit. An industrial spy hired by ice cream manufacturers eventually uncovers the terrible truth; he alerts the American people and blows up the yogurt factory, making the world safe once again for lovers of frozen confections.

In cooking up this gustatory melodrama, Cohen asked Effects Associates, a small special effects company, to create footage to enhance certain action sequences in the film. In a short letter dated October 29, 1984, Effects offered to prepare seven shots, ¹ the most dramatic of which would depict the climactic explosion of the Stuff factory. Cohen agreed to the deal orally, but no one said anything about who would own the copyright in the footage.

Cohen was unhappy with the factory explosion Effects created, and he expressed his dissatisfaction by paying Effects only half the promised amount for that shot. Effects made several demands for the rest of the money (a little over $8,000), but Cohen refused. Nevertheless, Cohen incorporated Effects's footage into the film and turned it over to New World Entertainment for distribution. Effects then brought this copyright infringement action, claiming that Cohen (along with his production company and New World) had no right to use the special effects footage unless he paid Effects the full contract price. Effects also brought pendent state law claims for fraud and conspiracy to infringe copyright.

The district court initially dismissed the suit, holding that it was primarily a contract dispute and, as such, did not arise under federal law. In an opinion remarkable for its lucidity, we reversed and remanded, concluding that plaintiff was "master of his claim" and could opt to pursue the copyright infringement action instead of suing on the contract. Effects Assocs., Inc. v. Cohen, 817 F.2d 72, 73 (9th Cir.1987). We recognized that the issue on remand would be whether Effects had transferred to Cohen the right to use the footage. Id. at 73 & n. 1, 74.

On remand, the district court granted summary judgment to Cohen on the infringement claim, holding that Effects had granted Cohen an implied license to use the shots. Accordingly, the court dismissed the remaining state law claims, allowing Effects to pursue them in state court. We review the district court's grant of summary judgment de novo.

Discussion

A. Transfer of Copyright Ownership

The law couldn't be clearer: The copyright owner of "a motion picture or other audiovisual work" has the exclusive rights to copy, distribute or display the copyrighted work publicly. 17 U.S.C. Sec. 106 (1988). While the copyright owner can sell or license his rights to someone else, section 204 of the Copyright Act invalidates a purported transfer of ownership unless it is in writing. 17 U.S.C. Sec. 204(a) (1988). ² Here, no one disputes that Effects is the copyright owner of the special effects footage used in "The Stuff," ³ and that defendants copied, distributed and publicly displayed this footage without written authorization.

Cohen suggests that section 204's writing requirement does not apply to this situation, advancing an argument that might be summarized, tongue in cheek, as: Moviemakers do lunch, not contracts. Cohen concedes that "[i]n the best of all possible legal worlds" parties would obey the writing requirement, but contends that moviemakers are too absorbed in developing "joint creative endeavors" to "focus upon the legal niceties of copyright licenses." Appellees' Brief at 16, 18. Thus, Cohen suggests that we hold section 204's writing requirement inapplicable here because "it [i]s customary in the motion picture industry ... not to have written licenses." Id. at 18. To the extent that Cohen's argument amounts to a plea to exempt moviemakers from the normal operation of section 204 by making implied transfers of copyrights "the rule, not the exception," id., we reject his argument.

Common sense tells us that agreements should routinely be put in writing. This simple practice prevents misunderstandings by spelling out the terms of a deal in black and white, forces parties to clarify their thinking and consider problems that could potentially arise, and encourages them to take their promises seriously because it's harder to backtrack on a written contract than on an oral one. Copyright law dovetails nicely with common sense by requiring that a transfer of copyright ownership be in writing. Section 204 ensures that the creator of a work will not give away his copyright inadvertently and forces a party who wants to use the copyrighted work to negotiate with the creator to determine precisely what rights are being transferred and at what price. Cf. Community for Creative Non-Violence v. Reid, --- U.S. ----, 109 S.Ct. 2166, 2177-78, 104 L.Ed.2d 811 (1989) (describing purpose of writing requirement for works made for hire). Most importantly, section 204 enhances predictability and certainty of copyright ownership--"Congress' paramount goal" when it revised the Act in 1976. Community for Creative Non-Violence, 109 S.Ct. at 2177; see also Dumas v. Gommerman, 865 F.2d 1093, 1103-04 (9th Cir.1989). Rather than look to the courts every time they disagree as to whether a particular use of the work violates their mutual understanding, parties need only look to the writing that sets out their respective rights.

Section 204's writing requirement is not unduly burdensome; it necessitates neither protracted negotiations nor substantial expense. The rule is really quite simple: If the copyright holder agrees to transfer ownership to another party, that party must get the copyright holder to sign a piece of paper saying so. It doesn't have to be the Magna Charta; a one-line pro forma statement will do.

Cohen's attempt to exempt moviemakers from the requirements of the Copyright Act is largely precluded by recent Supreme Court and circuit authority construing the work-for-hire doctrine. ⁴ Section 101 of the Act defines, in relevant part, a work made for hire as "a work prepared by an employee within the scope of his or her employment." 17 U.S.C. Sec. 101 (1988). Section 201(b) provides that the copyright in such a work is presumed to vest in the employer, not the employee. 17 U.S.C. Sec. 201(b) (1988). Prior to the Supreme Court's decision in Community for Creative Non-Violence, some circuits had broadly construed section 101's use of the term employee, holding a work to have been prepared by an employee whenever the hiring party controlled, or had the right to control, the product. See Community for Creative Non-Violence, 109 S.Ct. at 2172. This broad definition encompassed virtually all contributions to books and movies because, as the Court recognized, such contributions are "usually prepared at the instance, direction, and risk of a publisher or producer." Id. at 2173. The Court rejected this rule as inconsistent with both the language and purpose of the Copyright Act. Id. at 2172-74, 2177-78. It held instead that the term employee was to be defined according to general agency principles, id. at 2173, 2178; where a non-employee contributes to a book or movie, as Effects did here, the exclusive rights of copyright ownership vest in the creator of the contribution, unless there is a written agreement to the contrary. See id. at 2173.

This is similar to the conclusion we had reached several months earlier in Dumas v Gommerman. We had reasoned that, while many individuals may contribute to the final product, the Act does no more than give publishers and producers "statutory permission " to contract with the various contributors for the rights of authorship. 865 F.2d at 1101 (quoting Easter Seal Soc'y v. Playboy Enters., 815 F.2d 323, 329 (5th Cir.1987), cert. denied 485 U.S. 981, 108 S.Ct. 1280, 99 L.Ed.2d 491 (1988) (emphasis original)). Absent an express transfer of ownership, a contributor who is not an employee retains ownership of his copyright. See id.

Thus, section 101 specifically addresses the movie and book publishing industries, affording moviemakers a simple, straightforward way of obtaining ownership of the copyright in a creative contribution--namely, a written agreement. The Supreme Court and this circuit, while recognizing the custom and practice in the industry, have refused to permit moviemakers to sidestep section 204's writing...